Registered Investment Adviser Caleb Lawrence
The major averages enter the final hour with modest gains on little news as the markets look to recover their recent losses. Since Tuesday the Standard and Poors 500 Index has gained 5 points or a fraction of a percent, the NASDAQ is up 75 points or a little over 1%.
The recent sharp volatility that featured 2 days of 1,000-point losses on the Dow Jones Industrial average illustrated the markets precarious position with respect to valuation, leverage, debt and derivatives, or financial weapons of mass destruction as Warren Buffet has called them. Additionally, this combination, especially when taken to the record extremes it has been is an accident waiting to happen. That said the recent sharp declines served to bring out fresh warnings on the use of derivatives at a new hearing on granting Wall Street access to wholesale derivatives trading as seen leading up to the previous crisis that ultimately cost 8.7 million Americans their jobs, 10 million their homes, and wiped out nearly half of middle classes wealth. In the post bust period the banksters still haven’t learned their lesson, JP Morgan Chase lost 6.2 billion on the London Whale Trade in 2012, as an example. Citigroup is currently vying to be the top derivatives player having recently surpassed JP Morgan Chase with the notional value of derivatives now exceeding that seen just prior to the last crisis in 2007. Once again, the banks position themselves for ruin, looking to socialize losses with another bailout whilst keeping profits private. As was said at the time “The only thing worse than “excessive” leverage is excessive off-balance sheet leverage.” Something a string of spectacularly failed and overly leveraged entities named Long Term Capital Management, Enron, Lehman Brothers and Bear Stearns, to name a few, can attest.